How to Bypass Probate with Joint Tenancy

Joint tenancy means that you share ownership of property. Property held in joint tenancy isn’t part of the probate process; creditors don’t have access to property held as joint tenants.

If the court can prove that you transferred title of property to joint tenants to hide from creditors, your creditors may still make a claim against part of your joint tenancy property.

The key feature of joint tenancy is that when you die, the other co-owner receives your share of the property by right of survivorship. If you have a will, the property transfers outside of your will. If you don’t have a will, the property transfers outside of intestate succession laws. The surviving joint tenant(s) receive(s) the property.

Why should you consider joint tenancy as a will substitute? As an alternative to probate, joint tenancy provides you with several advantages:

Cost savings. The formation and eventual termination of joint tenancy is inexpensive, unlike other forms of will substitutes, such as a living trust that an attorney should review and prepare.

Clear title transfer. Because joint tenancy is based on right of survivorship, joint tenancy allows for a clear transfer of title to the surviving joint tenant.

Creditors claim reductions. One of the main steps in the probate process is the payment of valid creditors’ claims.

Convenient and fast. You can easily create and dissolve ownership as you refine your estate plan. Furthermore, by not having to deal with complex legal documents — wills, trusts, and living trusts — you can use joint tenancy without worrying about the legality and hassles of the wording in these documents.

Private. If you value your privacy, even after you’ve died, joint tenancy offers you a better alternative than probate, where your will and estate become part of the public record.

So far, so good with joint tenancy. The concept seems straightforward and the advantages sound pretty good. So why hold property any other way? Well, you know the old saying: If it sounds too good to be true, it must be an estate-planning concept! Holding property as joint tenants has significant limitations and disadvantages that you need to be aware of, including:

Forced disposition. The surviving joint tenant(s) receive(s) your share of the property. Period! You can’t decide to leave a portion of that property to your joint tenant and another portion to someone else.

Lack of control in property transfer. The right of survivorship feature may not control the final transfer of property under joint tenancy. The death of the next-to-last joint tenant leaves the property to the surviving joint tenant as sole property; no right of survivorship exists when you own something by yourself.

Undesirable property transfers. After the next-to-last joint tenant has died, the surviving joint tenant can dispose of the property in any way he or she wants, even if the disposal is contrary to the intentions of any other joint tenants who have died earlier.

Exposure to other joint tenant’s creditors. If your joint tenant loses a court battle and has a large judgment against him, the property you hold as joint tenants can potentially be subject to the judgment resulting in a forced sale of the property.

Numerous tax disadvantages. The savings in income tax may be more than offset by the increase in estate tax.